US Economics Week Ahead: The Calm Before The Storm

With the shortened week comes a rather light economic calendar, with the most significant release likely being the Fed’s Beige Book on Wednesday, followed by consumer sentiment on Friday. This week’s lull will come to an abrupt end next week with the release of the retails sales and Industrial production data, among others. In addition to the Fed’s Beige Book this week brings with it a relatively full schedule of Fed talk, with three members speaking between Wednesday and Thursday on various topics. Other notable releases include July’s international trade data and jobless claims on Thursday. Initial claims will continue to come under the spotlight as last week’s employment report sent investors mixed messages with payrolls coming in better than forecasted, while the unemployment rate disappointed expectations. The market will also hear earnings announcements from a handful of companies, including Campbell Soup Co. (CPB) and Men’s Warehouse (MW). Here is the rest of this week’s calendar:

Monday September 7th:

Labor Day- No Releases

Tuesday September 8th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a decline of -0.5% in store sales compared to an increment of 0.6% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales were down 4.1% last week on a year over year basis.

3:00PM: July Consumer Credit Outstanding (Risk: Neutral, Market Reaction: Marginal): The amount of consumer credit outstanding in July likely contracted, but albeit at a slower pace than the month prior due to upward momentum from auto sales stemming from the government’s ‘Cash for Clunkers’ program. Given tight credit conditions and the consumer’s apprehension toward borrowing the index’s revolving credit component should remain suppressed after falling -US$5.4bn in June. This index does not included mortgages or any loans backed by real estate. The current Bloomberg consensus forecast is for an overall drop in credit of around –US$ 4.0bn, compared to June’s net drop of -US$10.3bn.

US Congress Returns from August Break: Upcoming topics that will likely create headlines include; healthcare reform, financial regulation reform, additional increments to the US debt limit, and the reconfirmation of Chairman Bernanke.

Wednesday September 9th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Last week the overall index declined for the first time in five weeks, falling 2.2%. The refinance index declined 3.1%, while the purchase index fell 1.0%; this performance came despite falling mortgage rates and relatively low home prices.

2:00PM: Beige Book (Risk: Upside, Market Reaction: Significant): This report, which is released two weeks before FOMC meetings, outlines economic conditions across the Fed’s 12 districts. Recently the report, which has been negative for all of the year, may have reached an inflection point in July; continued signs of improvement would be a welcome sign to investors. This report helps to provide valuable input into the US service sector, which makes-up roughly 55% of the US economy.

Fed Speak: Charles Evans,Chicago Fed President, is schedule to speak at the Council of Foreign Relations in NY on the “Great Inflation Debate”.

OPEC is scheduled to meet on Wednesday, but is expected to make no changes to its current output policy.

Thursday September 10th:

8:30AM: July International Trade Data (Risk: Neutral, Market Reaction: Moderate): Due to the offsetting effect of a marginal decline in petroleum imports, stemming from pricing effects, July’s overall trade deficit should only show a marginal increment. The current Bloomberg consensus forecast for July’s deficit is US$28.0bn, versus June’s deficit of US$27.0bn

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 4K to 570K. Claims should demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time. The current Bloomberg consensus for this week’s initial claims number is 565K. In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. Last week the Fed’s balance sheet rose to US$2.069trn from US$2.052trn a week prior. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

Fed Speak: Fed Vice Chairman Donald Kohn is schedule to speak at the Brookings Institute in Washington D.C. on the Fed’s unorthodox policy response to the recent financial crisis. Dennis Lockhart, President of the Atlanta, is also scheduled to speak on Thursday.

US Treasury Secretary Timothy Geithner is scheduled to testify in front of a Congressional oversight committee regarding the Troubled Asset Relief Program (TARP).

The Bank of Canada and the ECB are scheduled to make monetary policy announcements.

Friday September 11th:

8:30AM: August Import and Export Prices (Risk: Neutral, Market Reaction: Moderate): An increment in petroleum prices during the month will likely cause August’s import price index to rise, after falling -0.7% in July. Presently, a substantial rise in any of the major pricing indicators could increase the amount of chatter over potential future inflationary pressures. For a more detailed analysis on how inflationary pressures could impact monetary policy please see my piece on FiatEconomics.com titled, ‘When Will the FOMC Turn From Dove to Hawk? Don’t Hold Your Breath…’.

9:55AM: August Preliminary Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): Improvements in the housing market, fewer job losses, and relatively low gasoline prices will like place some positive momentum on September’s preliminary Reuters/University of Michigan Consumer Sentiment Index. The current Bloomberg consensus forecast for the index is 67.0, compared to August’s final reading of 64.5. As you may recall August’s preliminary release unexpectedly fell to 63.2 from 66.0 in July causing significant leading to significant concerns over the US consumer sector. August’s final reading was the lowest since March 2009. An increment in last week in the Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index should bode well for consumer sentiment as they tend the indicators tend to demonstrate a significant correlation. The RBC Cash Index increased to 40.0 in September compared to a previous reading 37.5.

10:00AM: July Wholesale Trade (Risk: Neutral, Market Reaction: Moderate): This indicator measure the level of inventories and sales by US wholesalers. It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales. However, continued weakness in the labor market coupled with no indication of a rebound in consumer spending this index could face some negative pressure. It is also important to note that this data is on a two month lag.

2:00PM: Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The current Bloomberg consensus for July’s US government budget deficit is –US$140.0bn compared to –US$180.7 a month prior. Large deficits have led to record levels of US treasuries auctions, which in some instances have placed downward pressure on rates and in a few cases the growing deficit has even sparked some mild concerns over the US’s risk free credit rating.

Contact Me:

Michael.McDonough@fiateconomics.com
Michael is an economist/strategist who has worked from Wall Street to Hong Kong primarily focusing on the U.S. and emerging markets. He has also written several columns. More

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